Board of Trade of City of Chicago v. Olsen, 701

• Citation: 67 L.Ed. 839,262 U.S. 1,43 S.Ct. 470
• Decision Date: 16 April 1923
• Docket Number: No. 701,701
• Parties: BOARD OF TRADE OF CITY OF CHICAGO et al. v. OLSEN, U. S. Atty., et al
• Court: United States Supreme Court

262 U.S. 1

43 S.Ct. 470

67 L.Ed. 839

BOARD OF TRADE OF CITY OF CHICAGO et al.

v OLSEN, U. S. Atty., et al.

No. 701.

Argued Feb. 26, 1923.

Decided April 16, 1923.

[Syllabus from pages 1-3 intentionally omitted] This is an appeal from a decree of the District Court for Northern Illinois, dismissing a bill in equity. The appeal is under section 238 of the Judicial Code (as amended Act January 28, 1915, c. 22, § 2, 38 Stat. 803, 804 [Comp. St. § 1215]), the case being one in which the constitutionality of the Grain Futures Act (enacted by Congress September 21, 1922 (42 Stat. 998, c. 369), is drawn in question.

The bill was brought by the Board of Trade of the city of Chicago, and a number of its members representing each class of traders on the exchange of the Board, to enjoin the United States district attorney at Chicago, the Secretary of Agriculture, and the United States postmaster at Chicago from taking steps to enforce the provisions of the act against them, on the ground that it violates their rights under the federal Constitution.

The purpose of the act is expressed in its title to be for the prevention of obstructions and burdens upon interstate commerce in grain by regulating transactions on grain future exchanges and for other purposes. Its second section, par. (a), is one of definitions. Its definition of interstate commerce, in the sense of the act, is as follows:

'The words 'interstate commerce' shall be construed to mean commerce between any state, ter- ritory, or possession, or the District of Columbia, and any place outside thereof; or between points within the same state, territory, or possession, or the District of Columbia, but through any place outside thereof, or within any territory or possession, or the District of Columbia.'

Paragraph (b) contains the following addition to the foregoing definition:

'(b) For the purposes of this act (but not in any wise limiting the foregoing definition of interstate commerce) a transaction in respect to any article shall be considered to be in interstate commerce if such article is part of that current of commerce usual in the grain trade whereby grain and grain products and by-products thereof are sent from one state with the expectation that they will end their transit, after purchase, in another, including, in addition to cases within the above general description, all cases where purchase or sale is either for shipment to another state, or for manufacture within the state and the shipment outside the state of the products resulting from § ch manufacture. Articles normally in such current of commerce shall not be considered out of such commerce through resort being had to any means or device intended to remove transactions in respect thereto from the provisions of this act. For the purpose of this paragraph the word 'state' includes territory, the District of Columbia, possession of the United States, and foreign nation.'

Section 3 is in the nature of a recital and finding as follows:

'Sec. 3. Transactions in grain involving the sale thereof for future delivery as commonly conducted on Boards of Trade and known as 'futures' are affected with a national public interest; that such transactions are carried on in large volume by the public generally and by persons engaged in the business of buying and selling grain and the products and by-products thereof in inter- state commerce; that the prices involved in such transactions are generally quoted and disseminated throughout the United States and in foreign countries as a basis for determining the prices to the producer and the consumer of grain and the products and by-products thereof and to facilitate the movements thereof in interstate commerce; that such transactions are utilized by shippers, dealers, millers, and others engaged in handling grain and the products and by-products thereof in interstate commerce as a means of hedging themselves against possible loss through fluctuations in price; that the transactions and prices of grain on such boards of trade are susceptible to speculation, manipulation, and control, and sudden or unreasonable fluctuations in the prices thereof frequently occur as a result of such speculation, manipulation, or control, which are detrimental to the producer or the consumer and the persons handling grain and products and by-products thereof in interstate commerce, and that such fluctuations in prices are an obstruction to and a burden upon interstate commerce in grain and the products and by-products thereof and render regulation imperative for the protection of such commerce and the national public interest therein.'

The act in section 4 forbids all persons to use mails or interstate telephone, telegraphic, wireless, or other communication, in offering or accepting sales of grain for future delivery or to disseminate prices or quotations thereof, excepting the man who holds the grain he is offering for sale, and the owner or renter of land on which the grain offered for sale is to be grown, and excepting also members of Boards of Trade located at a terminal market on which cash sales occur in sufficient volume and under such conditions as to reflect the general value of grain and its different grades, and which have been designated by the Secretary of Agriculture as 'contract markets.'

The act puts these boards of trade under supervision of the Secretary of Agriculture and imposes conditions precedent and subsequent on his power to designate or continue them as 'contract markets.'

The conditions are:

(a) The keeping of a record with prescribed details of every transaction of cash and future sales of grain of the Board or its member in permanent form for three years, open to inspection of representatives of the Departments of Agriculture and of Justice.

(b) The prevention of the dissemination by the Board or any member of misleading prices.

(c) The prevention of manipulation of prices or the cornering of grain by the dealers or operators on the Board.

(d) The adoption of a rule permitting the admission as members of authorized representatives of lawfully formed co-operative associations of producers having adequate responsibility engaged in the cash grain business, complying with and agreeing to comply with, the rules of the Board applicable to other members, provided that no rule shall prevent the return to its members on a pro rata patronage basis the money collected by such association in the business, less expenses.

The Secretary of Agriculture, the Secretary of Commerce, and the Attorney General are made a commission to hear and determine after due notice, whether any board of trade has failed or is failing by rule to do the things required above, and, if found in default, to suspend its functions as a contract market for a period not to exceed six months, or to revoke its designation as such, with an appeal on the record to the Circuit Court of Appeals within the circuit where the board is situate. Such commission, too, is to hear appeals from the Secretary's action in refusing to designate any Board of Trade as a contract market.

There is a further provision for excluding from all contract markets and trading privileges any person violating the provisions of the act or the regulations in pursuance thereof.

Section 9 declares any one trading in futures in violation of section 4, or sending intentionally or carelessly false or misleading quotations or information as to the prices of grain, guilty of a misdemeanor.

The bill of the plaintiffs describes the organization of the Chicago, Board of Trade as a corporation under a special act of the Legislature of Illinois, passed in 1859 (Priv. Laws 1859, p. 13), with a membership of 1,600 and a board of 18 directors, of whom one is president. It avers that the Board does no business in selling or buying grain, but only furnishes an exchange and offices where such business can be done by its members; that it does not deliver any market quotation through interstate means, but it does cause to be collected the first price and each change of price on its exchange in cash and future sales during the regular hours in the exchange hall, and delivers them to certain telegraph companies, who pay the Board for this information.

The bill further avers that it is sustained only by the initiation fees and dues of its members, the former being $25,000 for each member, and the latter being in the form of annual assessments; that it has from these sources accumulated funds with which to provide a large building and offices for the exchange, from some of which it receives rental and so has property worth $2,000,000 or more; that its existence depends on keeping its memberships valuable; that it does this by requiring character and financial responsibility as qualifications for its membership and by a requirement that a member shall charge for every sale a fixed minimum commission to a nonmember principal, and a less minimum to a member who shall be his principal; that corporations are not permitted to be members, but that, when two of the stockholders and officers are members, the corporation is permitted as a member to make contracts on the exchange. The bill further avers that, if the Board were required to admit representatives of co-operative associations of producers, with the privilege of dividing with their members the proceeds of commissions, less expenses, it would greatly impair the value of its memberships to other members.

The bill further avers that the members of its exchange engage only in three kinds of trading:

(1) Many act as commission merchants, and receive from producers and country grain dealers grain in cars and boats consigned to them, which as agents they sell for immediate delivery and account to their principals for the proceeds of such sales, less their commissions and other expenses, and many members, as principals or agents, purchase and sell grain in Chicago which is in cars or...